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To EMV or not to EMV?

August 14, 2015

National Restaurant Assoication

To EMV or not to EMV? That’s the question many restaurants are asking. Deciding whether to invest in card-processing systems that accept credit and debit cards embedded with microchips – also known as EMV, or chip, cards -- is a hot topic in the restaurant world these days. Here’s why: Starting Oct. 1, 2015, merchants who haven’t invested in EMV-enabled equipment will be liable for fraudulent purchases made with a counterfeit credit or debit card.

If you’re like many restaurateurs, you may be having a hard time building a business case to take action to meet the EMV “liability shift.” Often, the numbers just can’t justify the time and cost it takes to implement the technology. As restaurants consider purchasing and installing EMV-enabled terminals, here are a few tips and pointers.

What’s EMV?

EMV or chip card technology, long used in Europe, makes it harder for criminals to produce counterfeit credit and debit cards.

Criminals known as “carders” take card numbers, often from hacked businesses, and make counterfeit cards using real account numbers. Counterfeiting remains easier in the United States because of outdated magnetic-stripe technology. EMV technology helps end this kind of fraud because retailers presented with an EMV card can run it through their readers to know it’s genuine.

Banks and card companies have begun rolling out EMV cards in the United States. Estimates for how quickly they'll roll out vary widely. The Aite Group last year estimated that 70 percent of credit cards and 41 percent of debit cards in use in the United States will be EMV-enabled by the end of this year. Javelin predicts 29 percent of credit cards and 17 percent of debit and prepaid cards will be EMV-enabled by the end of 2015.

Unlike in Europe and Canada, the card brands in the United States are only issuing EMV cards that require “chip and signature” authorization. It’s not clear when "chip and PIN" will arrive in the United States for EMV cards. Also, for the foreseeable future, the EMV cards that are being rolled out in the United States continue to carry the magnetic stripe. So even if you haven’t installed an EMV reader, you can still continue to take and process card payments just as you always have.

Know the facts

It’s important for restaurateurs to know the facts as the Oct. 1 liability-shift deadline approaches. Among the top things to remember:

This is a choice. There’s no legal or regulatory requirement for merchants to install EMV readers or take action by Oct. 1. The card brands have simply modified their contracts to penalize those merchants that chose not to implement the technology – and the penalties happen only if a merchant is defrauded through the use of counterfeit or stolen cards. It is a business decision that each company must make.

EMV may be a fix for a problem you don’t have. Counterfeit cards have primarily been a problem for high-end retailers, electronic stores and other retailers. Criminals use counterfeit cards to buy high-end goods and resell them on the black market for a quick and easy profit. Typically, carders and other criminals haven’t targeted restaurants. If you haven’t had a big problem, you may not need to make a change. If you see a growing problem after the October 2015 liability shift, you may want to reevaluate.

Weigh the costs. To evaluate your potential liability, look at how many, if any, of your chargebacks are due to the use of counterfeit or stolen cards. If the numbers are low, it may be hard to justify the cost of EMV-enabled terminals. Even if you experience fraud, the cost of the chargeback may be far less than the cost of installing a new EMV reader, or fleet of readers. As you look at the expense of buying and installing EMV readers, consider whether you’re better offer investing in new technology that offers stronger protections, such as encryption and tokenization.

Ask the right questions as you upgrade. As you upgrade your POS system, make sure the new system incorporates not only EMV technology, but also encryption and tokenization technologies. The NRA considers these technologies far more important for restaurants than EMV. Encryption technology immediately encrypts card data as it’s entered into the POS system, so it’s unintelligible even if it get stolen. Tokenization replaces stored card data with “tokens.” These tokens are unusable by hackers and have no value.

A growing number of vendors -- including NRA partner Heartland Payment Systems, which offers its “Heartland Secure” solution – are offering end-to-end encryption and tokenization technologies to scramble customer card data and protect it from the moment the card is swiped.

In short, EMV helps you deal with counterfeit cards, but encryption and tokenization will protect a restaurant from hacking and data breaches – and that’s a bigger threat to restaurants’ bottom line because it could subject you to huge fines from card companies, customer lawsuits and damage to your restaurant brand.